Fiscal deficit expected to widen significantly

South Africa’s fiscal deficit is expected to have widened significantly to -7,6% of GDP in the 2009/10 fiscal year from projections in February of -3,8%, it was revealed by Treasury on Tuesday.

The deficit is seen at -6,2% of GDP in 2010/11 from prior projections of -3,2% and then at -5% from -1,9% in February. A new projection made in today’s medium-term budget is for the deficit to have reached -4,2% of GDP in 2012/13.

Treasury made no bones about the fact that the deficit is unsustainable at current levels and even spoke about the need for new taxes to help improve the fiscal position.

“As the economy recovers over the next few years, government will act to reduce borrowing gradually as the present deficit level is unsustainable,” said Treasury.

Tax revenue has fallen by about 3,2% of GDP since peaking in 2007/08, with the greatest declines in VAT receipts, company taxes and trade taxes.

South Africa’s fiscal deficit was at -1% in 2008/9, a number which at the time invoked a negative response in the economy and especially the bond market as it meant higher borrowing. Net national government borrowing has now virtually doubled to R175,8-billion.

Treasury acknowledged on Tuesday that tax revenue is down sharply as a result of the recession.—I-Net Bridge

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